Final answer:
With universal life insurance, charges are deducted from the cash value for costs such as sales, administrative, and insurance itself, while interest is credited to this value. The cash value serves as a useable account and is affected by the broader financial operations and costs associated with running an insurance company.
Step-by-step explanation:
With universal life insurance, sales, administrative, and loading charges are deducted from the policy's cash value along with the cost of insurance. The interest rate is credited to the cash value. Universal life insurance combines a death benefit with a cash value component, which is an accumulated amount that can serve as an account for your use. Policies may also include various fees such as sales commissions and administrative expenses.
The major additional costs to insurance companies, other than the payment of claims, are the costs of running a business. This includes administrative costs such as hiring workers, administering accounts, and processing insurance claims. The inflow of insurance premiums and the outflow of claims payments are typically much larger than the amounts earned by investing money or the administrative costs.